Can I Open a ROTH IRA for my Teen? How Do I Get Started?

Dear Eliza,

My 16 year old daughter has saved $1,200 from her summer camp counseling job. Can I open a Roth IRA for her? How do I get started?

Your teen did an awesome job getting that summer job. Kudos to her! The short answer to your question is Yes! A Roth IRA is an individual retirement account, and once your teen has earned income, you can open a custodial Roth IRA for them, where you the adult maintains control. I did this with my teens as soon as they started earning income. The best part; teens have time on their side, and compound interest is their best friend, so start TODAY!!!

To answer the second part of your question, you can open the custodial Roth IRA with brokerage firms such as Fidelity, Charles Schwab, or Vanguard. I especially like Fidelity because of their user friendly website and app.

List of features of custodial Roth IRA.
Minors under age 18
Maximum annual contribution is $6500 for 2023
Choose low cost fund. Keep It Simple.
At any time, withdraw contributions tax and penalty free.
To avoid penalty on earnings, wait till age 59.5 years and minimum of five years.
To motivate your teen, you can match their contribution. Remember your match and their contribution cannot exceed their earning. Example, if your teen earned $2000 and they contributed $1600, you can only match up to $400.
VTI through Fidelity is a low cost total index ETF with 0.03% expense ratio. A 0/03% expense ratio means you are charged $3 per year for every $10000 invested. An exchange traded fund (ETF) has many assets, which makes it a great choice for diversification.


Here is an example scenario that illustrates the advantage a teen has when they start saving early. 8% return on $100 a month starting at age 25 is approximately $335,737.25 by age 65. If you start investing the same amount at age 15, the return will be about double the amount, $743,606.12.

chart showing growth of investment at age 15 and age 25

One of the best things I did, was to listen to the audio version of a Simple Path to Wealth by JL. Collins. It is the best gift for you and your teen. Relaxing on a weekend evening? Read or listen to Simple Path to Wealth, and you will be happy you did.

Don’t forget to read about How to Avoid High Investment Fees.

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